The extension of credit by lenders and by the sellers of goods and services has in turn created a concomitant increase in debt, a large percentage of which is delinquent (i.e., one or more payments that are due from the debtor under a loan agreement under an installment credit agreement are over-due or late), which over time is eventually considered to be uncollectable or “bad” debt. Creditors regularly attempt to collect debts by way of letters and phone calls to debtors and in some instances, debt is at least partially reduced by repossession of assets that secure a debt.
The process of debt collection has grown into a sophisticated endeavor. Current debt collection processes typically use historical payment and credit data as predictors of future payment likelihood.
FIG. 1 depicts a simplified representation of a prior art debt collection process 100. Extrinsic or external payment data 102, which is typically collected by and available from third party debt collection data services such as Equifax, Inc., Experion, Inc. and others, includes data such as income, debt-to-income ratio, other creditors and a “credit score” which is usually a dimensionless index calculated by the third party credit reporting agency using a proprietary formula to attempt to rate or grade the credit worthiness of the debtor.
In addition to external data 102, prior art debt collection processes used by many creditors also use internal data 104, which is data on a particular debtor that is collected by a creditor. Internal data 104 typically includes the creditor's payment history, his purchase history and contact history.
The payment history 106 typically includes the historical timeliness of required loan or installment payments by a creditor. Payment history data 106 can be valuable in collecting debt if the payment history data 106 shows that a particular debtor is either habitually late or his payments are delinquent, or consistently makes payments on time. Payment history data 106 can be a good indicator of future payment likelihood.
Purchase history data 108 typically includes data of the business relationship with the debtor over time. A long-time customer as evidenced by purchase history data 108 might be treated differently than a new customer. Accordingly, purchase history data 108 is frequently considered during a debt collection effort.
A contact history or record 110 is typically a record of the substance of communications to and from a debtor. Contact history data 110, such as records of conversations with, or correspondence from a debtor, that payment(s) will be forthcoming, but which subsequently proved to be false, can be helpful in determining how to collect an existing debt.
A raw credit score 112 is typically a dimensionless index that is calculated using a creditor-proprietary formula or methodology, the resultant numerical value of which provides some sort of measure of the debtor's credit worthiness. A credit score is based upon historical data and relies upon historical data as a predictor of future payment likelihood.
Contact information 114 typically includes phone numbers, addresses and other information useful in identifying and contacting or locating a debtor.
In the prior art debt collection processes, external data 102 and internal data 104 are analyzed alone or in combination in step 120 in order to determine a risk profile 122 as well as a model of the debtor's behavior 124. In step 130, the task of collecting all or part of debt is assigned to a debt collector or group of debt collectors based upon the risk profile 122 and behavior model 124 of step 120.
A problem with prior art debt collection techniques is that they rely upon historical data in determining whether or not to pursue debt collection as well as the techniques of how to pursue debt collection. Historical facts are not always accurate predictors of a debtor's future behavior nor do historical facts always correctly suggest collection techniques that a debtor will respond to. Almost all creditors have many more delinquent debtors than they do collection agents to pursue debt collection. A method by which a limited number of debt collection agents can be optimally assigned to particular debtors so as to optimize collections would be an improvement over the prior art.
Optimally assigning a limited number of debt collection agents to a much larger number of debtors, requires that consideration be given to how to maximize a creditor's economic realization from the efforts of debt collectors, some of whom might be less effective than others. In addition, consideration must also be given to the various costs that are incurred by a creditor in making any sort of accommodation to a debtor. A method by which debt collection can be optimized over all variables affecting economic realization would be an improvement over the prior art.